A SPAC, or special-purpose acquisition company, is a blank-check company with the purpose of raising capital to merge with a private business. The only asset these companies contain is the capital raised as they have no service or product to provide. These are often created by institutional investors, especially private equity firms who bring experience that leads to people buying the SPAC. This plays an important role because retail investors, most of the time, don’t know exactly what private company they will invest in when they put their money into a SPAC. The acquisition companies have targets in mind, but those aren’t released to the public, which makes institutional backing important. When a merger occurs, the SPAC sponsors often get a 20 percent stake in the company, and retail investors who bought the SPAC can swap their shares for the merged company or redeem their investment back with the interest it has gained. Interest? Yes, the funds the SPAC raises goes into an interest-bearing trust, which provides a benefit to investors. Certain companies prefer SPACs instead of IPOs because it’s quicker, and the company can get capital much faster.
Recently this red hot spac boom has seen a slow down, and a bit of a change with who’s occupying it. More recently SPACs have become fertile ground for activist investors who push for changes at problematic companies and profit from them. This interesting approach to SPACs has also become a hot bed issue for many in the investment community. Experts in the industry like Perrie Weiner, a partner at Baker McKenzie LLP. has said: “It makes sense that they would look at SPACs because oftentimes when the de-SPAC M&A happens, the stock would drop 10% or 15% even in the best of cases.” “There might be buying opportunities and activists might be able to do well. For SPACs when they first get off the ground, it takes a while to get their feet under them and sometimes the management teams aren’t as good as they should be.” What do you think about this SPACs? And would you invest any of these activist based SPACs?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.